According to the Ministry of Minerals, government stands ready to facilitate investor meetings and explore potential business ventures in Tanzania. However, investors operating under the current mining regime in Tanzania still face challenges which require a thorough regime review and fix, for the challenges to go.

Author:  Governance and Economic Policy Centre

Tanzania is endowed with a variety of mineral resources and has been successful in attracting large mining investments. However, over the past few years, this investment curve stagnated and has zigzaged out, as potential new investors stayed away in fear of a potentially unpredictable regulatory mining regime.  In order to attract and retain new large-scale projects, investors suggest, that pertinent reforms must be made.

This brief traces Tanzania’s mining history and from an investor perspective, shows how the country started losing the momentum and its share as a leading mining destination. It proposes some actions and reforms that could be made to reclaim its glory while at the same time achieving a win-win regime for sustainable mining and development.

Tanzania’s mining in a historical context

Mining and minerals trading has a long history in Tanzania, dating back to 18th century when Arab traders plied the Tanzanian coastal towns bringing spices from the Arabian gulf in exchange for gold, copper, iron and other minerals.  Records show that the German colonialists discovered gold in Geita and Sekenke (Singida) where the first gold mine was established in 1909.

In 1940 a Canadian Geologist Dr. John Williamson discovered the Mwadui Kimberlite pipe and established a diamond mine there.  After his death in 1958 his heirs sold the mine to De Beers (50%) and the British colonial government (50%).

In 1971 the government of Tanzania nationalised all mines.  The State Mining Corporation (STAMICO) took ownership of the Diamond mine and run it between 1974 to 1993 when years of ill maintenance took their toll to cause an urgent need of recapitalisation and equipment overhaul.  This need came at a time when the country was going through a tough economic situation that it was not possible to accommodate the need.  A decision was made to invite De Beers to the rescue. They agreed to recapitalise the company and in return acquired a 75% stake in the mine in 1994.  In 2009 DE Beers sold their 75% stake to Petra Diamonds.

Following economic troubles of the seventies, raising fuel prices, geopolitical tensions between ‘east and west’, the 1978/79 war between Tanzania and Uganda, low commodity prices for the country’s backbone agriculture produce (cotton, coffee & sisal) exports, the Tanzanian economy continued to deteriorate to the extent that the country was left with no other option but to embrace free market economic policies advocated by the Bretton Woods Institutions. 

With advice and guidance from the World Bank and IMF, Tanzania liberalised its mining sector and invited foreign investors.  This was during the 3rd phase government of H.E. Benjamin William Mkapa (RIP). The shift to free market economy and liberalised mining industry required new policies, laws and regulations.

New Mining Reforms and knock off effects

A Mineral Policy was formulated in 1997.  The policy gave way for private sector to take the lead in mineral exploration, development, mining, beneficiation and marketing.  Instead of being an active participant, the government would become the facilitator, the regulator and the administrator. This policy was complimented by the Mining Act 1998.

The Mineral Policy 1997 and accompanying Mining Act 1998 together with personal efforts by the late President Benjamin William Mkapa resulted in foreign mining investors in their multitudes flocking the country.  In a span of about eleven years (1998 – 2009) six large scale gold mines were opened.  These are:

  • Golden Pride Mine in 1998, owned by Resolute Mining Limited of Australia
  • Geita Gold Mine in 2000, owned by Anglogold Ashanti of South Africa
  • Bulyanhulu Gold Mine in 2001, owned by Barrick Gold of Canada
  • North Mara Gold Mine in 2002, owned by Sutton Resources of Canada and later the mine was acquired by Barrick Gold of Canada
  • Tulawaka Gold Mine in 2005, owned by Pangea Minerals – a wholly owned subsidiary of Barrick Gold of Canada
  • Buzwagi Gold Mine in 2009, owned by Barrick Gold

Despite the many benefits that the new mines brought, including improved balance of trade realised by increased gold exports, increased government revenue collection through import & employment taxes, the multiplier effect that was created by new business opportunities to local suppliers and contractors, there was still a public outcry that the country was not getting enough.

It deemed necessary to form various committees and task them with reviewing the country’s policy, law, regulations and public views on the mining industry and compare the findings to the practice in other African countries.  The aim was to improve the playing field to achieve a win-win situation.  Four committees were formed for the cause at different times between 2002 and 2009:

  • General (Rtd) Robert Mboma Committee in 2002
  • Kipokola Committee in 2004
  • Lau Masha Committee in 2008
  • Judge Mark Bomani (RIP) Committee in 2009

Observations and opinions collected from the various committees led to the formation of a new Mineral Policy in 2009 and enactment of the (new) Mining Act 2010.

Vision of the Mineral Policy 2009 was to attain an effective mineral sector that contributes significantly to the acceleration of socio-economic development of the country, through sustainable development and utilization of mineral resources by the year 2025.  This included attaining a GDP contribution of 10%.  Note that the GDP contribution of the mining sector was 2.7% in 2010 (BOT Annual Report June 2011). Focus of the Mineral Policy 2009 was to integrate mining with other sectors of the economy.

It’s interesting to note that:

  • After establishment of the Mining Act 2010 and its accompanying regulations, only one ‘medium scale’ gold mine was constructed – the New Luika Mine in 2012.
  • Thereafter, there have been a limited number of medium scale mines (smaller in size and production capacity than New Luika) which have been constructed, but not a single large scale mine has been built ever since.

Following the change of government in 2015, the Mining Act 2010 was further overhauled in 2017 and led to the current version of the act – Mining Act CAP 123 R.E. 2019.  This overhaul was complemented by two new acts:

  • The Natural Wealth and Resources (Permanent Sovereignty) Act, 2017
  • The Natural Wealth and Resources Contracts (Review and Renegotiation of Unconscionable Terms) Act, 2017

The Mining Act CAP 123 R.E. 2019 introduced new clauses which imposed more control of natural resources by the government.  It banned export of mineral concentrates and put more emphasis on local refining of extracted minerals.  It revoked retention licenses and introduced new clauses to govern local content and corporate social responsibility.  The intent was to see more participation of Tanzanians in management of the foreign owned mining companies and in the value chain of the mined minerals.  Instead of exporting raw minerals the companies were required to beneficiate locally before export. The Government was also enabled by the law to acquire at least 15% un-dilutable free carried interest in Mining Licenses and Special Mining Licenses.

Key takes from the new law on ‘permanent sovereignty’ were introduction of clauses which mandated for:

  • Arbitration of commercial disputes in local courts and using Tanzanian law
  • Review by Parliament of agreements entered on natural resources
  • Local beneficiation of mined minerals
  • Retention of earnings in local banks

The ‘review and renegotiation of unconscionable terms’ act gave mandate for the Parliament to review any agreement on natural resources previously entered by the government, to be reviewed and renegotiated if the terms entered appeared to be unconscionable.

In a 2017 commentary, titled: Tanzania Overhauls Mining Laws, Fines Investor US$190 Billion: Is Your Investment Protected?  the JonesDay, a leading commercial law firm wrote; ‘The new laws heighten the government’s role and power in investment contracts, increase the costs of foreign investment, and substantially reduce investment protections, including international arbitration. Investors should take immediate action to mitigate the risks associated with the Tanzanian government’s actions pertaining to the mining industry[1]. Despite current government reassurances, to date these fears have continued to revibrate among risk averse investors, who remain uncertain of Tanzania’s future investment climate. For these laws have never been repealed.

Factors driving mining investment decisions

To put matters in context, one crucial criterion that attracts mining investors to a country is rich geology that has a scientific potential to host high grade orebodies. Tanzania is among the African countries blessed with such geology.  But to attract mining investors rich geology cannot stand on its own.  Rich geology must be complemented by:

  1. A conducive business environment
  2. A stable fiscal/mining regime
  3. Security of tenure
  4. Political stability and peace in the country
  5. Skilled artisans
  6. Good infrastructure – roads, rails, power, etc.

Over the years until in the recent past the country managed to do well in the list above on items 4 to 6.  Items 1 to 3, however, have been a challenge.

 Wins and missed opportunity

When the first large scale mine was established in 1998 at Lusu ward, Nzega district, Tanzania had a challenging road, rail and power infrastructure.  Some important mining skills were lacking.  But the country was politically stable, mining companies owning Special Mining Licenses had their fiscal issues stabilised by the Mining Development Agreements (MDA) signed with the government, there was security of tenure and a good business environment.  Over time, good progress continued to be made in some areas, but there was deterioration of circumstances in other areas as noted by  investors. 

Frequent and unilateral changes to laws and regulations led to breach of mine development agreements (MDAs).  Some concessions given to investors through the signed Mine Development Agreements were not honoured by the Tanzania Revenue Authority because they were not gazetted, and despite requests from concerned investors the Ministry of Finance avoided gazetting the MDA’s.

Significant improvement and upgrade made to road and power infrastructure; and skills development was defeated by unnecessary red tape brought about by introduction of a multiplicity of regulators who appeared to be more focused in raising revenue through hefty fines rather than providing oversite and regulating the sector.

Security of tenure was put at risk by uncontrolled gold rushes and haphazard trespassing by unlicensed artisanal miners. Investors who had invested millions of US Dollars in green field exploration witnessed invasion of their tenements by unlicensed artisanal miners with no serious intervention by authorities to rescue the situation, allowing the invasions to be politically concluded at the demise of the investor.

In summary, the current mining industry in Tanzania has been a mixed grill of successes and failures. Despite the many ups and downs over the years, several ‘wins’ have been witnessed by the sector following revision of the Mining Act CAP 123 R.E. 2019 and enactment of the laws on sovereignty in natural resources and renegotiation of unconscionable terms on agreements entered by the government on natural resources:

  • Renegotiation of the Mining Development Agreement entered between the Government of Tanzania and Barrick Gold Corporation which led to Acquisition of a 15% un-dilutable free carried stake by the Government in Barrick Gold mining projects in Tanzania (Bulyanhulu & North Mara Gold Mines) and signing of a Framework Agreement between the Government and the company.
  • Acquisition of a 15% un-dilutable free carried stake by the Government of Tanzania in the Kabanga Nickel project (Tembo Nickel Corporation).
  • Acquisition by the Tanzanian Government of a 15% un-dilutable free carried stake in the Ecograph Epanko graphite project
  • Acquisition by the Tanzanian government of a 15% un-dilutable free carried stake in the Peak Resources Ngualla REE project (through Mamba Minerals)
  • Acquisition of a 15% un-dilutable free carried stake by the Government in the Strandline Resources Heavy Minerals Sands project through Nyati Resources
  • Acquisition by the government of a 15% un-dilutable free carried stake in the Evolution Energy Chilalo Graphite project through Kudu Graphite Limited
  • Acquisition of a 20% un-dilutable free carried government stake in the Perseus Mining Nyanzaga Gold Project through Sota Mining Ltd.
  • Increased royalty collections following increase of the royalty on gold to 6% from the previous 4%
  • Increased gold revenue collections through the introduction of 1% inspection fee on gold exports
  • Construction of 3 gold refineries in Mwanza, Geita and Dodoma which have not only facilitated purchase of refined gold by the Bank of Tanzania but have also created employment opportunities to Tanzanians.
  • Enforcement of local content regulations which have in turn facilitated the participation of Tanzanians in the mines supply chain.
  • Enforcement of new local content regulations have made it possible for several Tanzanians to take over senior management positions in foreign mining companies investing in Tanzania
  • Enforcement of new CSR regulations have enabled CSR projects to be managed in a fair and transparent manner, ensuring value for money of the projects.
  • Introduction of the online Mining Cadastre system has revolutionised the licensing process by modernising it. The ‘first come first served’ approach in license application is working fine and fairly.  So long as they have all the required supporting documents in soft / electronic form, applicants are now able to lodge license applications from wherever they are in the world. They just need to be connected to the internet.
  • Significant improvements in power generation and transmission capacity have enabled connection of major mines to the national electricity grid. It was heartwarming to witness connection of the Geita Gold Mine (Anglogold Ashanti) to the national power grid.  This event shall not only save the company millions of US Dollars in energy cost, but it will also increase Tanesco’s revenue.  The Geita mine used to consume about 8 million litres of diesel every month to generate electricity using a rented thermal plant.

But, have the country now achieved a win-win situation? How is this goal going to be realised?

In the business world the investors would always want to maximise their profits and governments would always want to maximise their tax and fees collections to support socioeconomic development.  An attractive and well researched mining regime that involved stakeholder participation in its making is the only one that will manage to at least strike a delicate balance between the profits anticipated by the investors and the taxes and fees anticipated by the Government.

Obstacles that Tanzania Mining investors face

Courtesy Photo: Tanzania Minerals Minister, Anthony Mavunde speaks to stakeholders in Dar es Salaam

According to the Ministry of Minerals, government stands ready to facilitate investor meetings and explore potential business ventures in Tanzania. This unwavering commitment to attracting foreign investment underscores the nation’s dedication to unlocking the full potential of its mining sector. Tanzania Mining industry is highly important since it accounts for a significant share of the country’s export revenues. The Government plans to have this sector contribute 10% of GDP by 2025.

However, investors operating under the current mining regime in Tanzania still face challenges which require a thorough regime review and fix, for the challenges to go.

  • Several advanced mining projects including the ones in Graphite, REE, Heavy Mineral Sands and Gold have continued to struggle in raising project finance due to some clauses in different laws governing the mining sector in relation to the ownership of won minerals as well as banking of mineral sales proceeds
  • Extended negotiations on the making of framework agreements have been one area that frustrates many investors whose projects have reached that stage in their development
  • If left the way they are, some local content procurement tendering procedures have the potential to cause costly delays during the construction phase of the advanced projects
  • If left as currently reads, some wording on Section 56 of the Income Tax Act CAP 332 R.E. 2006 will end up ‘taxing’ capital of exploration companies when shareholding changes. Triggering imposition of Section 56 will cause a 30% capital gain tax on a junior exploration company when part of whose shares are acquired by another company for the intent of capitalising the junior company.  It should be noted here that exploration companies are not operating mines and instead of making money they normally burn money trying to find a mineable mineral deposit.  Trying to tax a non-trading company is weird and unheard in the mining industry.  The only way we can generate new mines to replace closed ones is by promoting exploration – not discouraging, investors say
  • The Income Tax Act CAP 332 R.E. 2006 disallows deduction of Royalty costs when calculating taxable income of a mining entity. This is a concern because no company is allowed to export minerals unless it has paid Royalty, meaning that royalty is part and parcel of the costs incurred to generate revenue of the company and should therefore be an allowable deduction

The above listed are only a few issues of concern to mining investors and something that the Government needs to have another look about or even conduct a study to see their quantitative impact in discouraging mining investment in Tanzania and what will be the impact (pro or cons) if some of the clauses will be amended to reflect investor’s proposals.

Proposed remedial actions and reforms that government should take

 There is a raft of measures that government can take. These include;

  1. Asses the current investment climate with a view to determine whether the 2017 mining reforms achieved any significant dividend to the mining sector
  2. Re-examine the current laws, particularly those passed in 2016 and 2017 to see if there are any remaining clauses that may be of concern to the mining investors. Some changes were made , however government should evaluate and see if there are any areas that need further review, without losing the core purpose of securing maximum value for Tanzania.
  3. Re-evaluate Tanzania’s mineral geology and mining potential in the current context and future mining investments trends, with a view of keeping aligned and on course to attract and retain new large-scale investors
  4. The final approach would be to form yet another task force made of representatives who are experts in the field of mining business and mining taxation, from the government and the mining private sector, to mutually consult and come up with a proposal that would attain a level play field balancing the profit anticipation of the investors and the tax and fees anticipation of the Government.

Minerals will always be a finite resource. Value can only be derived from them when they are extracted from underground and used to the benefit of the country.

The opportunity is still there to exploit minerals in Tanzania for the fair benefit of both the Government of Tanzania (on behalf of its people) and the investors. With tweaks to some of the current mining laws, bolstered with stability and government confidence building measures, the Tanzania can recapture and retain its glory as the prime mining investment destination in Africa.

While contemplating on the next move, the government should also make a thorough assessment of mark-timing mining projects – public (like the Liganga iron ore and Mchuchuma coal) and private ones (like the Kabanga Nickel, Mkuju River Uranium and Nyanzaga Gold), to see how such projects can be fast tracked and brought to production stage. With the speed at which technology is developing in the world, Tanzania faces the big risk of having some of its mineral deposit being stranded.  The coal deposits at Mchuchuma are faced with the highest risk with the current push for the world to go green and stop the use of fossil fuels.

With determination and the right people and policies at the forefront, the government can profitably and timely exploit the country’s minerals for the social economic development of its people.

[1] https://www.jonesday.com/en/insights/2017/08/tanzania-overhauls-mining-laws-fines-investor-us190-billion-is-your-investment-protected